Senate passes largest permanent tax cut in Minnesota state history

Minnesotans are some of the most highly-taxed people in the United States.

The Minnesota State Capitol building (Minnesota Department of Administration/Flickr)

The Minnesota Senate passed what Republicans are calling the largest permanent tax cut in state history on Thursday.

SF 3692, passed in a bipartisan 42-24 vote, eliminates state income tax on Social Security benefits and reduces the first-tier rate from 5.35% to 2.80%, according to a press release.

The release claims that eliminating the state income tax on Social Security will save beneficiaries a collective $1.6 billion, and slashing the first-tier tax rate will save many Minnesota families several hundred dollars per year, if not more.

It is also understood that the bill provides over $8.4 billion in tax relief over the next three years — at a time when the state of Minnesota has a record-setting projected budget surplus of $9.25 billion.

Senators who helped pass the legislation said this tax cut is designed to help Minnesota families struggling under the weight of persistent inflation.

“At a time when Minnesotans are facing 40-year record high inflation, it’s imperative to provide permanent, ongoing relief to all taxpayers,” Sen. Carla Nelson, R-Rochester, chair of the Senate Tax Committee, said in a statement. “We are working to ease their financial burdens, right size Minnesota’s tax structure, and provide a boost in every single paycheck from here on out. We can empower Minnesotans and get our state on the right track with this immediate, permanent tax relief.”

Senate Majority Leader Jeremy Miller, R-Winona, added in a statement of his own that the $9.25 billion budget surplus means the Minnesota state government is “overcollecting from taxpayers.”

“We have heard loud and clear from Minnesotans — send the money back,” he said. “Our permanent, ongoing tax relief package will put more money in the pockets of senior citizens and working Minnesotans every single paycheck, week after week, month after month, year after year.”

Minnesotans are some of the most highly-taxed people in the United States. The state’s lowest tax bracket, the first-tier rate of 5.35%, is higher than the highest tax brackets of 24 other states. A new report also confirmed that Minnesota is the eighth-worst state in the U.S. for individual income tax.

And Minnesota is in a small minority of states that tax Social Security benefits.

Although some Democrats voted for the bill, others called it “reckless” and “predictable in that it favors the wealthy few.”

“This proposal does favor the wealthy. We’ve heard our colleagues talk about it today. It tips toward them in the income tax and in the Social Security proposal,” said Sen. Erin Murphy, DFL-St. Paul.

Senate Minority Leader Melisa Lopez Franzen, DFL-Edina, described the tax bill as “irresponsible” and “costly.”

“It imperils our state’s future budget stability and it leaves out hundreds of thousands of Minnesotans,” she claimed. “The people at the top of the income scale, many who have thrived during this pandemic, get a guarantee of the largest tax breaks.”

“More than half a million Minnesotans, over 540,000 struggling taxpayers across the state, will get no benefit, no benefit at all, from this costly bill,” she added.

Nelson responded to these allegations during a press conference Thursday morning prior to the vote.

“The fact of the matter is [the wealthy] are receiving the smallest percent of a tax-rate reduction. In other words, they are receiving a very small reduction in their tax rate whereas folks at the more modest end are receiving a much higher rate cut,” she said. “So it’s not accurate to say that we are favoring the wealthy.”

“The statement is just simply not true because if you look at how the money is distributed, it’s really targeted toward middle-class Minnesotans,” added Miller.